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How to assess time charter damages

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The complexities of assessing the value to be placed on a disrupted time charter, calculating appropriate damages, and understanding legal developments were discussed at a seminar on Tuesday, November 12th. Organised by the London Shipping Law centre Maritime Business Forum, it took place at Moore Stephens’ London offices.

Deploying a hypothetical case, Nick King, Director, Moore Stephens Shipping Group summarised the approaches to calculating damages and the factors to be taken into account.

He pointed out that, until recently, damages or loss assessment could be arrived at by multiplying market rates times days lost and deducting them  from the original charter hire charge. However, the Kildare charter hire case in April 2010 had brought to the fore “discount for accelerated receipt of income.”

This called for an increasingly sophisticated view of the options available among discounted flow techniques.

Calclulations had to allow for planned off-hire days, brokerage costs and interest rates—-variously projected several years ahead to arrive at a present value figure as a basis for agreeing a settlement.

Peter Daniel, of Fairlead Forensic Accounting, focused on differing interpretations of value.

The problems of valuing some damaged installations, such as oil rigs, lay in their worth being seen in the context of a wider viable operation. Market value lay in the attraction of particular assets, such as ships, to third parties. Some would pay a premium if a vessel or other asset was exactly what they needed (special value). A fair value might be a split difference between a seller’s asking price and a buyer’s initial offer.

In many instances, however, there was no prevailing indication of the best route to arriving at a proper value. The Parties just had to agree.

Stephen Gee QC, of Stone Chambers outlined the many factors arising from the unexpired time period of a charter which had been interrupted or ended prematurely.

He referred to causation and making awards on the balance of probabilities; reasonable royalty, war clauses, contract repudiation, receipt of damages under a Tomlin order, and the reinforced importance of discounted cash flow calculations following the Kildare Award.

The UK Supreme Court had created scope for granting damages instead of injunctions—and for breaching injunctions. However, such injunctions would not be considered in the European Court. Prospective approaches of national courts remained a major consideration in agreeing in which jurisdiction a case might be heard.

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